Market Update: MAG7 Divergences

Ok, with that out of the way, we want to talk about divergences. For those of you who’ve followed us for any length of time, you’ll know that we pay special attention to divergences, as they tend to happen at the end of a move—signaling an exhaustion of the move.

For nearly a year, MAG7 has led us from the depths of despair. Remember when the fukwitz all told you that the economy would detonate from high interest rates and we’d all go back to living in the stone age?? Well, they were wrong and we were right to say that Fiscal trumps rates. Anyway, while that debate evolved, MAG7 simply didn’t have down days. Over the past few weeks, that’s been changing. First we lost TSLA, then the others stopped going up. Admittedly, you could call these consolidations. However, we note the change in momentum. Things are changing. Now, even NVDA is running out of steam. Is it forming an Eiffel Tower (see KEDM Vol. 164)?? SMCI sure looks like it, though those burning vol into the S&P addition are laughing their asses off anyway…Worth noting all the rebals hit on Friday for Monday index changes (see Index Monitor)

Now look at TLT. Yeah, we know, only retail follows TLT, but humor us. Bonds are rolling. The fiscal crisis is back on the table. Is there any wonder that gold/silver/bitcoin are bid and nothing else is?? Could we be at the end of the road for growth, with a rotation coming for value??

We were just starting out in Q1/2000, but we remember how the market stopped trending higher. One by one, hot internet growth names would roll over. Then the big cap stocks, the ‘blue chips’ like CMGI, ICGE, CSCO, JNPR, AKAM, FDRY, NT, LU, MU, ARBA, etc. started to have really wild moves. Big up days, big down days. Everyone thought it was a consolidation, but instead, it was a reversal. Down we went. Everyone remembers the decline in stocks. No one remembers the sector rotation. Value names went up all year from March onwards. It was relentless. As the air went out of tech, it breathed new life into value.

Look at MLM or CAT or VMC or GE. The old economy is undergoing a stealth bull market that no one is talking about. Is the air about to come out of the tech economy and chase the industrial economy?? Right as tech names look like they’re rolling, industrial is all hitting new highs. Is JPOW really going to cut rates as the US economy overheats?? We’re not chart guys, but we cannot ignore what’s happening in large cap industrial names. Here’s FCX. Is this a breakout??

Finally, since we’ve spoken a LOT about offshore we couldn’t let you go without a chart of TDW.

Seriously, tell us she isn’t trading like a shit-coin, with new all-time highs yet again. Despite a multi-bagger since we first started talking about it two years ago, the shares are still trading at a low single-digit cash flow multiple based on 2025 estimates. Would you want this at a large discount to replacement cost?? Or some AI nonsense??

We remain convinced that eventually, the mob will come to our point of view. In the interim, we cannot help but notice where the bull market charts are, and where the saggy ones are. It does feel like the leadership is transitioning here. Are you ready??